Investors might be quite concerned about the vast expansion of capital investment being made by some hyperscalers to support their artificial intelligence aspirations.
But there is an established logic here that has played out in the past in the computing industry: high capital expenditure is one of the most formidable barriers to entry in the computing industry, particularly in semiconductors, cloud infrastructure, and AI.
The strategy also is evident in other industries and domains.
This is rational, though concerning to many investors.
Dominant firms with access to massive capital can make enormous infrastructure investments that raise the minimum viable scale for competition.
This creates a self-reinforcing cycle where competitors must either match the investment to remain relevant or accept a permanent competitive disadvantage.
Eventually, the capital requirements become so extreme that new entrants are effectively locked out, and smaller competitors are forced to exit or consolidate. The strategic value to hyperscalers includes:
Preemptive positioning: By building capacity ahead of demand, they occupy strategic positions before competitors can respond.
Credible commitment: Massive sunk costs signal to competitors and investors that the incumbent won't easily retreat from the market.
Economies of scale: Higher fixed costs create steeper learning curves and better unit economics that smaller players can't match.
Talent and supplier lock-in: Large capex programs secure scarce engineering talent and manufacturing capacity.
Jensen Huang, Nvidia CEO, has emphasized that scale in AI computing creates "moats" that are difficult to cross. And, in recent days, we have seen hyperscale cloud providers routinely announce capex figures in earnings calls as competitive signals.
Semiconductor executives also have explicitly discussed capacity additions as deterrents to new fab construction by competitors.
So there is a rational logic at work here. The computing industry increasingly resembles other capital-intensive industries such as aerospace or pharmaceuticals, where high barriers to entry lead to oligopolistic market structures.
Investing now increases the odds that a particular hyperscaler will emerge as a leader when the industry matures.
Historians might note that the principle works in other spheres of life as well. President Ronald Reagan, for example, deliberately provoked an arms race with the Soviet Union, betting that the USSR could not keep up. He won that bet.
Nor is the strategy unusual.
The logic of "investment wars" operates across many domains. The underlying principle is the same: those with access to capital can raise the stakes so high that potential competitors are priced out of meaningful participation.
In each case, the dominant actor exploits asymmetric access to resources to:
Raise minimum viable scale beyond what most competitors can afford
Create psychological deterrence by signaling overwhelming commitment
Lock in strategic assets (talent, infrastructure, relationships) before competitors can mobilize
Force attrition by making competition economically irrational
Establish self-reinforcing advantages where initial spending generates returns that fund further spending.
These examples demonstrate several variations on the core theme:
Preemptive capacity building: Netflix's content spending, NFL stadium construction, and college athletic facilities all involve building ahead of immediate need to lock in advantages.
Talent hoarding: Political campaigns hiring all available consultants, sports teams signing players beyond roster needs, and media companies locking up producers all prevent competitors from accessing critical human capital.
Attention monopolization: Super Bowl advertisers, political ad spending, and streaming content libraries all aim to crowd out competitors from limited audience attention.
Infrastructure lock-in: Olympic bids, college facilities, and broadcasting rights create long-term structural advantages that persist beyond the initial spending
Deterrence signaling: Bloomberg's billion-dollar primary campaign and Formula 1 budgets send signals that make potential competition seem futile.
The point is that although the escalation of spending worries many, it is an established strategic move.
